International arbitration law and rules in China

The Chinese legal framework has traditionally maintained a distinction between domestic arbitration and foreign-related arbitration. However recently there has been expansion in the roles of domestic arbitration institutions into foreign-related disputes and foreign-related arbitration institutions into domestic disputes.

1.1.1 The People’s Republic of China (PRC) 1 This guide refers to the law of the People’s Republic of China with the exclusion of the law of Taiwan and the Special Administration Regions of Hong Kong and Macao.  Arbitration Law was promulgated by the Standing Committee of the National People’s Congress of the PRC on 31 August 1994 and came into force on 1 September 1995 (1994 PRC Arbitration Law). It was revised on 1 September 2017 and the revised version came into force on 1 January 2018 (PRC Arbitration Law).

1.1.2 In the PRC, civil legal disputes that are not resolved through pre-action negotiations between the parties can be finally resolved by either litigation or arbitration. As a matter of principle, if the parties do not otherwise agree, jurisdiction over civil cases will be exercised by the PRC People’s Courts according to article 6 of the PRC Civil Procedure Law of 1 July 2017 (PRC Civil Procedure Law).

1.1.3 Arbitration is the preferred method of dispute resolution for foreign parties and foreign-invested enterprises (FIE) 2 For further discussion on FIEs, see paragraph 1.2.5 below.  in the PRC for the following reasons:

• proceedings brought before the ordinary PRC People’s Courts can be risky, particularly for foreign parties and FIEs. Judges may be inclined to follow the instructions of PRC administrative bodies which may protect the interests of the local party or may be susceptible to outside influences;
• whilst it is theoretically possible under PRC law to agree to submit a dispute to the jurisdiction of a foreign court, judgments from courts in the PRC’s major western trading partner countries are still not recognised and not enforceable in the PRC due to a lack of reciprocity between the PRC and these countries; 3 As of 23 April 2021, the following 39 countries have signed bilateral treaties on judicial assistance in civil and commercial matters (including enforcement of foreign judgments) with the PRC: Algeria, Argentina, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Cuba, Cyprus, Egypt, Ethiopia, France, Greece, Bulgaria, Iran, Italy, Kazakhstan, Kuwait, Kyrgyzstan, Laos, Lithuania, Mongolia, Morocco, North Korea (Democratic People’s Republic of Korea), Peru, Poland, Romania, Russia, Singapore, South Korea (Republic of Korea), Spain, Tajikistan, Thailand, Tunisia, Turkiye, United Arab Emirates, Urkaine, Uzbekistan, and Vietnam
• the major arbitration institutions in the PRC offer online arbitration, in which the parties can conduct their arbitration online (the parties need to expressly agree to apply online arbitration rules).
• whereas most PRC People’s Court proceedings are public, 4  PRC Civil Procedure Law, art 134. arbitration is generally in private unless the parties agree otherwise; and
• arbitration also offers more flexibility to parties in relation to procedures and formalities such as the adoption of proceedings in a foreign language, 5 For further discussion on language, see paragraph 7.2 below. whereas litigation in the PRC must be conducted in the Chinese language.

There are crucial distinctions between domestic arbitration, foreign-related arbitration, foreign arbitration and arbitration administered by foreign arbitration institutions seated in the PRC. These concepts have developed separately over time and, as discussed in paragraph 3.1.1 below, the PRC Arbitration Law maintains a distinction between how domestic arbitration and foreign-related arbitration are treated under PRC law.

Domestic arbitration

1.2.1 Rules pertaining to domestic arbitrations apply to all circumstances in which there are no foreign interests 6 For further discussion on foreign interest, see paragraph 1.2.4 below.  involved in the dispute. 

Foreign-related arbitration

1.2.2 Rules relating to foreign-related arbitrations apply in circumstances where there is a “foreign interest” in the dispute.

1.2.3 There is no definition of “foreign-related arbitration” in the PRC Arbitration Law, but a definition of the term “foreign interest” can be located in other sources of PRC law. According to article 522 of the Interpretation of the Supreme People’s Court (SPC) on the Application of the Civil Procedure Law in effect since 4 February 2015 (CPL Interpretation) and article 1 of the Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Law of the People’s Republic of China on Foreign-Related Civil Relations (I) (SPC Interpretation (I)) in effect since 7 January 2013, a dispute involves a “foreign interest” where:

• one or both parties are foreigners, foreign entities or foreign organisations;
• one or both parties have their habitual residence outside the territory of the PRC;
• the legal circumstances relating to the conclusion, modification or termination of a contractual relationship took place in a foreign country; 
• the subject matter of the dispute is located in a foreign country; or 
• there are other circumstances under which a case may be deemed a foreign-related dispute.

1.2.4 FIEs are enterprises that are incorporated under PRC laws within the territory of the PRC and are wholly or partly funded by foreign investors, 7 Foreign Investment Law of the People’s Republic of China (published on 15 March 2019 and in force since 1 January 2020), art 2, para 3. including wholly foreign-owned enterprises (WFOEs) and Sino-foreign joint venture enterprises (JVs) that constitute PRC domestic entities. 8 The distinction between WFOEs and JVs ceased to exist for FIEs established as of 1 January 2020, and those JVs established before 1 January 2020 have to restructure their company organs before 1 January 2025 according to art 44, para 2 of the Implementing Regulations of the Foreign Investment Law of the People’s Republic of China.  As a general rule, any arbitration between an FIE and a PRC company or two FIEs is considered to be domestic and governed by the provisions of the PRC Arbitration Law that relate to domestic arbitration rather than a foreign-related arbitration, unless any of the circumstances set out in paragraph 1.2.4 apply. The mere fact that an FIE is funded by a foreign investor is not sufficient to transform the dispute into one involving “foreign interest”. 

Foreign arbitration

1.2.5 Rules pertaining to foreign arbitration apply in circumstances where there is a dispute with a foreign interest that is administered by a foreign arbitration institution 9 For further discussion on foreign arbitration institutions, see paragraph 2.4 below.  or an ad hoc arbitration that takes place outside of the PRC.

1.2.6 Article 271 of the PRC Civil Procedure Law provides that foreign-related disputes may be submitted to a foreign arbitration institution for arbitration. According to judicial practice, arbitration clauses without a foreign interest in which a foreign arbitration was agreed by the parties have almost always been regarded as invalid by the court, including disputes between an FIE and a domestic party, or between two FIEs. The mere fact that an FIE is funded by a foreign investor was traditionally not sufficient to transform the dispute into one involving “foreign interest”. 10 Foreign Arbitration and Ad Hoc Procedure Permitted for Enterprises in Free Trade Zones, Falk Lichtenstein, Lexology, 6 February 2017.

1.2.7 A first exception to this doctrine was established by the case Siemens International Trading (Shanghai) Co., v Shanghai Golden Landmark Co., Ltd, (2013) Hu Yi Zhong Min Ren (Wai Zhong) Zi No.2. In this case, the parties, two WFOEs registered in PRC, submitted their contractual disputes to the Singapore International Arbitration Centre (SIAC) for arbitration and the arbitral award was made in Singapore. However, the place of delivery and the subject matter of the contract were in the PRC. The contract did not contain any of the explicitly formulated foreign interests as stated in paragraph 1.2.4. Nonetheless, the No. 1 Intermediate People’s Court of Shanghai Municipality recognised and enforced the foreign arbitral award. The court stated that there was a “foreign interest” involved as both parties were WFOEs that were incorporated in a free trade zone (FTZ) in Shanghai. The court further stated that, as the objective of the FTZ was to facilitate foreign investment, emphasis should be given to this when considering if a “foreign interest” existed. 

​1.2.8 The special treatment of WFOEs in FTZs has been confirmed by the Supreme People’s Court’s Opinions on Providing Judicial Safeguard to the Construction of FTZs (SPC FTZ Opinions) with effect of 30 December 2016. article 9 of the SPC FTZ Opinions provides that, if WFOEs registered in the FTZs agree to submit commercial disputes between them to a foreign arbitration institution for arbitration, the arbitration clause shall not be deemed invalid if the sole reason asserted is that the dispute does not involve a foreign interest. This means that as long as the dispute concerned is between WFOEs located in one or more FTZs, 11 As of November 2020, there are 21 FTZs in China. These are located in Beijing, Shanghai, Tianjin, Guangdong, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan, Hunan, Anhui, Hainan, Shandong, Jiangsu, Yunan, Guangxi, Heilongjiang, and Shaanxi. it can be submitted for foreign arbitration without any additional foreign interest being required. 12 Foreign Arbitration and Ad Hoc Procedure Permitted for Enterprises in Free Trade Zones, Falk Lichtenstein, Lexology, 6 February 2017.  However, this principle does not apply to JVs registered in the FTZs, nor to WFOEs or JVs registered outside the FTZs.

1.2.9 Article 9 of the SPC FTZ Opinions further provides that, where one or both parties are FIEs (including WFOEs and JVs) registered in the FTZs and agree to submit commercial disputes to a foreign arbitration institution for arbitration, after the relevant foreign arbitral award is made, the arbitration clause shall not be invalidated and enforcement of the arbitral award shall not be denied. Alternatively, where the other party did not object to the validity of the arbitration clause in the arbitration proceedings, it is not permitted to claim that the arbitration clause is invalid on the ground that the dispute does not involve a foreign interest after the relevant foreign arbitral award is made. However, it is worth noting that the arbitration clause can be challenged during the arbitration proceeding, ie, before the foreign arbitral award is made. 

Arbitration administered by foreign arbitration institutions seated in the PRC

1.2.10 As stated in paragraph 1.2.6 above, foreign arbitration refers to arbitration conducted by foreign arbitration institutions or ad hoc arbitration outside the PRC. Recently, there has been a trend to pave the way for foreign arbitration institutions to administer disputes within the territory of the PRC. 

1.2.11 In the past, an arbitration clause providing for foreign arbitration before a foreign arbitration institution to be conducted within the PRC was unlikely to be regarded as valid under PRC law. However, recent case law indicates that the judiciary in the PRC may be demonstrating a pro-arbitration attitude. In the case of Longlide Packaging Co. Ltd v BP Agnati SRL SPC 2013 Min Ta Zi No.13 (Longlide Case), there was a dispute concerning the validity of an arbitration clause which provided that any contractual dispute was to be arbitrated before the International Chamber of Commerce (ICC) with the seat of arbitration in Shanghai, PRC. The validity of the arbitration clause was challenged on the grounds that the ICC was a foreign arbitration institution, which was not recognised as an arbitration commission 13 For further discussion on arbitration commission, see paragraph 2.2 below.  under the PRC Arbitration Law. However, the SPC held that the arbitration clause was valid because all elements of article 16 of the PRC Arbitration Law 14 For further discussion on arbitration commission, see paragraph 2.2 below.  were satisfied. This approach was echoed in the case of BNB v BNA (2020) Shanghai 01 Civil Special 83 (BNB Case), where the arbitration clause provided that any contractual dispute was to be submitted to the SIAC for arbitration in Shanghai. The validity of the arbitration clause was challenged on the grounds that PRC law prohibited a foreign arbitration institution from administering an arbitration seated in the PRC. However, the No. 1 Intermediate People’s Court of Shanghai Municipality confirmed the validity of the arbitration clause for the reason that there was no express PRC law that prohibited foreign arbitration institutions from administering arbitrations seated in the PRC. 15 For further discussion on arbitration administered by foreign arbitration institutions seated in the PRC and potential challenges regarding the recognition and enforcement of the resulting arbitral award, see paragraphs 2.4.2~2.4.5 and 11.3 below.

2.1.1 In order to be valid and binding, article 16 of the PRC Arbitration Law requires an arbitration agreement to contain a designated arbitration institution that will administer the arbitration. In any event, this requirement applies to domestic arbitration in the PRC.

2.1.2 This requirement also applies to foreign-related PRC arbitration unless a foreign law was effectively chosen to govern the arbitration clause. 16 For further discussion on law applicable to the arbitration agreement, see paragraph 6.2.1 below.  According to article 16 of the Interpretation of the Supreme People’s Court on Certain Issues Concerning the Applicability of the Arbitration Law of the People’s Republic of China of 23 August 2006, effective as of 8 September 2006 (Interpretation), which was revised on 16 December 2008 and took effect on the same day, the laws agreed upon between the parties shall apply to a court’s examination of the validity of an arbitration agreement involving a foreign interest; where the parties did not agree upon the applicable law but have agreed upon the place of arbitration, the law at the place of arbitration shall be applicable; where neither the applicable law nor the place of arbitration is agreed, the law at the locality of the court shall apply. 

2.1.3 Therefore, for foreign-related arbitration in which the parties either chose PRC law as the governing law of the arbitration clause or are silent on the governing law of the arbitration clause, the PRC Arbitration Law applies, including its article 16 that prohibits ad hoc arbitration. 

2.1.4 For foreign arbitration including ad hoc foreign arbitration conducted outside of the PRC, article 16 of the PRC Arbitration Law applies only if the parties chose PRC law as the governing law for the arbitration clause. 

2.1.5 For arbitration administered by foreign arbitration institutions seated within the PRC, if the parties chose PRC law as the governing law for the arbitration clause or are silent on the governing law for the arbitration clause, according to recent relevant case precedents, 17 See the Longlide case in paragraph 1.2.12 above and FZCO Case in paragraph 4.2.5 below. article 16 of the PRC Arbitration Law also applies. 18 For an example of the application of article 16 of the Arbitration Law, see paragraph 1.2.12 above.

2.1.6 In general, an arbitration agreement providing for ad hoc arbitration within the PRC will be considered to be invalid (for failing to fulfil the requirements of article 16 of the PRC Arbitration Law) and will not prevent a PRC People’s Court from accepting jurisdiction to hear a dispute arising between the parties to it. As a result, ad hoc arbitration is rare within the PRC. 

2.1.7 The prohibition of ad hoc arbitration within the PRC was abolished some years ago for enterprises incorporated in the FTZs. Article 9 of the SPC FTZ Opinions provides that, if enterprises in the FTZs agree to settle their disputes at a specified location within the PRC, according to certain arbitration rules and by specified arbitrators (which are characteristic of ad hoc arbitration), the arbitration agreement could only be ruled invalid with the SPC’s approval.

2.2.1 It is widely acknowledged that the term “arbitration commission” used in the PRC Arbitration Law in fact refers to the more commonly used term “arbitration institution”. Based on the wording of article 10 of the PRC Arbitration Law, commentators have concluded that the reference to an “arbitration commission” is to an arbitration institution that is established in the PRC. 19 See, for example, Tao and von Wunschheim, “Articles 16 and 18 of the PRC Arbitration Law: The Great Wall of China for Foreign Arbitration Institutions”, Arbitration International (Kluwer Law International, 2007, Vol 23, issue 2) p 310.

2.2.2 Before the introduction of the 1994 PRC Arbitration Law, domestic arbitration institutions were not independent from government authorities. The 1994 PRC Arbitration Law aimed to reform arbitration in the PRC, to transform it into a more commercial form of dispute resolution that was independent from judicial and administrative interference. As a result, the structure of domestic arbitration institutions was amended, and any domestic arbitration institutions that did not comply with the provisions of the 1994 PRC Arbitration Law were abolished.

2.2.3 Under the PRC Arbitration Law, domestic arbitration institutions may be set up directly under the provincial governments of provinces and autonomous regions 20 PRC Arbitration Law, art 10. and are organised by the local Chamber of Commerce at the provincial level. 21 Ibid. They may also be established in other municipalities with districts. 22 Ibid. However, in contrast to arbitration institutions organised under the previous laws that regulated the establishment of arbitration institutions, the PRC Arbitration Law expressly provides that domestic arbitral institutions must be independent from administrative authorities. There must be no subordinate relationships between domestic arbitral institutions and administrative authorities. 23 Ibid, art 14.

2.2.4 Following the entry into force of the 1994 PRC Arbitration Law, more than 200 domestic arbitration institutions have been established in the PRC, including the Beijing Arbitration Commission, Shanghai Arbitration Commission, Guangzhou Arbitration Commission, Shenzhen Arbitration Commission and Wuhan Arbitration Commission.

2.2.5 According to article 3 of the Notice of the General Office of the State Council on Several Issues that Need to be Clarified to Implement the Arbitration Law of the People’s Republic of China (issued in 1996), domestic arbitration institutions are also entitled to administer foreign-related disputes, if so agreed by the parties.

2.2.6 While the legislation requires a strict legal separation between the administrative authorities and these domestic arbitration institutions, it should be noted that, in reality, these legal safeguards are not always effective. Not all domestic arbitration institutions are free from judicial and administrative interference. Local protectionism and political influence are common problems. Parties that have these concerns often prefer to choose a foreign arbitration institution (if possible) or a reputable, foreign-related arbitration commission (such as CIETAC, discussed below at paragraph 2.3.4).

2.3.1 Foreign-related arbitration institutions were established to administer foreign-related disputes within the PRC.

2.3.2 In contrast to the organisational structure of domestic arbitration institutions, 24 See section 2.2 above. the PRC Arbitration Law requires foreign-related arbitration institutions to be organised and established by the China International Chamber of Commerce. 25 PRC Arbitration Law, art 66.

2.3.3 A distinction concerning the manner in which domestic and foreign-related arbitration institutions administer arbitral proceedings arises with regard to the restrictions upon who may be appointed as arbitrator by those arbitration institutions. Foreign-related arbitration institutions may appoint arbitrators from “among foreigners with special knowledge in the fields of law, economy and trade, science and technology, etc”. 26 Ibid, art 67. However, domestic arbitration institutions must appoint arbitrators who are “fair and honest” and who meet at least one of the requirements listed in article 13 of the PRC Arbitration Law. 27 Ibid, art 13. This demonstrates the reduced flexibility and autonomy that a domestic arbitration institution may exercise in certain circumstances, compared with a foreign-related arbitration institution.

2.3.4 The best known foreign-related arbitration institution is the China International Economic and Trade Arbitration Commission (CIETAC), which was established in 1956 to resolve economic and trade disputes between a foreign entity and a PRC entity. CIETAC is also one of the largest arbitration centres in the world. It is headquartered in Beijing with Sub-Commissions in Shenzhen (also known as the South China Sub-Commission and established in 1989), Shanghai (established in 1990), Tianjin (established in 2008), Chongqing (established in 2008), Zhejiang (established in 2015), Hubei (established in 2015), Fujian (established in 2017), Sichuan (established in 2018), and Shandong (established in 2018). CIETAC also established the Hong Kong Arbitration Centre (established in 2012), the Jiangsu Arbitration Centre in Nanjing (established in 2017), the Silk Road Arbitration Centre in Xi’an (established in 2018), and the Hainan Arbitration Centre (established in 2020). 

2.3.5 On 4 August 2012, CIETAC Shanghai Sub-Commission and CIETAC South China Sub-Commission jointly announced that they would become independent arbitration institutions. On 22 October 2012, CIETAC South China Sub-Commission was renamed as either the South China International Economic and Trade Arbitration Commission (SCIETAC) or the Shenzhen Court of International Arbitration (SCIA), which then further merged on 25 December 2017 with the Shenzhen Arbitration Commission (SAC) to form the Shenzhen Court of International Arbitration (Shenzhen Arbitration Commission) (SCIA-SAC). On 11 April 2013, CIETAC Shanghai Sub-Commission renamed itself as the Shanghai International Economic and Trade Arbitration Commission (SIETAC), otherwise known as the Shanghai International Arbitration Centre (SHIAC). Known as the “CIETAC Split”, the departure from CIETAC and the name change by both sub-commissions created uncertainties in arbitration agreements that referred to these sub-commissions as the administering institutions. To address this, the SPC issued the Official Reply of the Supreme People’s Court on the Request of the Shanghai High People’s Court and Others for Instructions on the Cases Involving the Judicial Review of Arbitral Awards Made by China International Economic and Trade Arbitration Commission, Its Former Sub-Commissions and Other Arbitration Institutions, a binding judicial interpretation on 15 July 2015 which took effect on 17 July 2015 (SPC Reply). The SPC Reply clarified that if the arbitration agreement referring to CIETAC Shanghai Sub-Commision or CIETAC South China Sub-Commission as the arbitration institution was signed before the former CIETAC Shanghai Sub-Commission was renamed as SHIAC, ie 11 April 2013, or before the former CIETAC South China Sub-Commission was renamed as SCIA, ie 22 October 2012, SHIAC or SCIA, respectively, should have jurisdiction. If the arbitration agreement referring to CIETAC Shanghai Sub-Commision or CIETAC South China Sub-Commission as the arbitration institution, was signed after the former CIETAC Shanghai Sub-Commission was renamed as SHIAC or the former CIETAC South China Sub-Commission was renamed as SCIA, CIETAC should have jurisdiction.

2.3.6 Before the adoption of the 1994 PRC Arbitration Law, CIETAC and China Maritime Arbitration Commission (CMAC) were the only arbitration institutions in the PRC that were qualified to administer foreign-related arbitration proceedings. 28 CMAC only administers maritime disputes. These two arbitration institutions survived the reforms under the 1994 PRC Arbitration Law and remain distinct from domestic arbitration institutions. Even though domestic arbitration institutions are now able to hear international cases, CIETAC maintains its leading position in international arbitration with a high volume of cases. In addition, CIETAC and CMAC have extended their sphere of competence so as to encompass domestic as well as foreign-related disputes, if so agreed by the parties. 29 CIETAC Arbitration Rules, art 3. Arbitration before CIETAC is governed by the CIETAC Arbitration Rules. Over the years, these rules have been amended several times. The latest revision, effective as of 1 January 2015, introduced further amendments to modernise the CIETAC Arbitration Rules. The new rules apply to arbitrations administered by CIETAC Beijing, and also by its various sub-commissions. 30 Ibid, art 4(1).  The new rules also contain special provisions for arbitration proceedings administered by the CIETAC Hong Kong Arbitration Centre. 31 Ibid, Chapter VI, art 73 -80. On 19 September 2017, CIETAC published the Arbitration Rules of the China International Economic and Trade Arbitration Commission for International Investment Disputes (for Trial Implementation) which took effect on 1 October 2017. This is CIETAC’s first set of arbitration rules on international investor-state investment disputes. 32 CIETAC publishes arbitration rules for investor-state disputes, Falk Lichtenstein, Lexology, 28 September 2017

2.3.7 In light of the recent expansion in the roles of both domestic arbitration institutions (into foreign-related disputes) and foreign-related arbitration institutions (into domestic disputes), the traditional distinction between these two forms of arbitration institution has diminished considerably. A positive aspect of this development is the increased competition between foreign-related and certain domestic arbitration institutions, which can be expected to result in an improvement in the quality of arbitration in the PRC.

2.3.8 As a result of this expansion, the main distinction between domestic and foreign-related arbitrations under the PRC Arbitration Law is now focused upon the nature of the underlying dispute, rather than on the arbitration institution that is administering the arbitral proceedings. This distinction is particularly apparent in relation to the enforcement of awards (see further section 11 below).

2.4.1 There is no legislative definition of “foreign arbitration institutions” in the PRC. Reference to a “foreign arbitration institution” is, therefore, considered to cover arbitration institutions that are established outside the PRC, such as the ICC, Hong Kong International Arbitration Centre (HKIAC), SIAC, Stockholm Chamber of Commerce (SCC), Zurich Chamber of Commerce (ZHK), German Institution of Arbitration (DIS), London Court of International Arbitration (LCIA) and World Intellectual Property Organization (WIPO) Arbitration and Mediation Centre, etc.

Foreign arbitration institutions operating within the PRC

2.4.2 Foreign arbitration institutions were traditionally not allowed to operate in the PRC because article 10 of the PRC Arbitration Law provides that the establishment and operation of arbitration institutions are subject to the prior approval of the administrative department of justice of the relevant province, autonomous region or municipality directly under the central government. 

2.4.3 However, this situation has recently started to change. On 27 July 2019, the State Council of the PRC issued the Framework Plan for the New Lingang Area of China (Shanghai) Pilot FTZ, which allows well-known overseas arbitration and dispute resolution institutions to establish business divisions in the Lingang FTZ in Shanghai to conduct arbitration with respect to civil and commercial disputes arising in international commerce, maritime, investment and other fields. On 19 October 2019, the Measures for the Administration of the Establishment of Business Offices by Overseas Arbitration Institutions in Lingang New Area of China (Shanghai) Pilot FTZ were published, which have been in effect since 1 January 2020. They regulate the establishment of business in Lingang New Area of China (Shanghai) Pilot FTZ by overseas arbitration institutions, which refer to non-profit arbitration institutions legally established in foreign countries, the Hong Kong and Macao Special Administrative Regions and the Taiwan Region of China, as well as the arbitration institutions established by the international organisations which the PRC has authorised to carry out arbitration business. On 13 December 2019, the Opinions of the Supreme People’s Court on Providing Judicial Services and Safeguards for the Construction of the Lingang Special Area of the China (Shanghai) Pilot FTZ by People’s Courts were published and became effective on the same day. They support registered overseas arbitration institutions in conducting arbitration business in the Lingang Special Area on civil and commercial disputes in international commercial, maritime, investment and other fields. 33 Opinions of the Supreme People’s Court on Providing Judicial Services and Safeguards for the Construction of the Lingang Special Area of the China (Shanghai) Pilot FTZ by People’s Courts, art 6. On 30 December 2019, regulations on the Shanghai Court Services to Ensure the Implementation of the Lingang Special Area of the China (Shanghai) Pilot FTZ were published and became effective on the same day. They support overseas arbitration and dispute resolution institutions that have been registered and have filed for business in accordance with the law. 34 Shanghai Court Services to Ensure the Implementation of the Lingang Special Area of the China (Shanghai) Pilot FTZ, art 9. On 19 May 2020, Several Policies for the Promotion and the Development of Legal Services Industry in Lingang New Area of China (Shanghai) FTZ were published. They were revised on 29 September 2020 and have been effective as of 1 October 2020 and valid until 31 December 2022. These policies are applicable to domestic or international legal service institutions whose place of registration, actual place of business, and place of fiscal and tax account management are in Lingang New Area. 35 Several Policies for the Promotion and the Developmentof Legal Service Industry in Lingang New Area of China (Shanghai) Pilot FTZ, art 1.

2.4.4 In addition to Shanghai, Beijing is also opening to foreign arbitration institutions. On 7 September 2020, the State Council of China published the Work Plan for A Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening-up of State Services Sectors. According to this policy paper, foreign arbitration institutions will be allowed to set up business organisations in designated areas in Beijing to provide arbitration services in relation to civil and commercial disputes arising in the areas of international commerce and investment. 36 Work Plan for Deepening Comprehensive Pilot and New Round of Opening-Up of Services Sectors in Beijing and Building Comprehensive Demonstrative Area of Opening-up of State Services Sectors, art 8.

2.4.5 On 20 October 2019, WIPO’s Shanghai Centre for Arbitration and Mediation was officially approved by the Ministry of Justice and established and put into operation on 20 October 2020. This is the first foreign arbitration institution set up in China and it administered its first foreign-related intellectual property case in July 2020. 

3.1.1 The PRC Arbitration Law maintains what PRC legal scholars describe as a “dual track system”, 37 Wenying, “Distinct Features of Arbitration Law in China: An Historical Perspective”, Journal of International Arbitration. (Kluwer International, 2006, Vol 23, issue 1) p 64.  which distinguishes between domestic and foreign-related arbitration, though in practice the dichotomy is blurring. 38 See further discussion in paragraphs 2.3.7~2.3.8 above. Chapter VII of the PRC Arbitration Law contains special provisions for foreign-related arbitration. Where matters arising out of an arbitration are not expressly covered by Chapter VII, the other provisions of the PRC Arbitration Law shall apply to all arbitral proceedings which have their seat of arbitration in the PRC. 39 PRC Arbitration Law, art 65.  In practice, the arbitration rules of the relevant arbitration institution (for example, the CIETAC Arbitration Rules, which are the most commonly used institutional arbitration rules for foreign-related disputes) are more detailed and supplement the provisions on the arbitration procedure described in the PRC Arbitration Law.

3.1.2 Foreign arbitrations and arbitrations administered within the PRC by foreign arbitration institutions are rule-based, based on the governing law chosen or the laws applicable at the seat of the arbitration and the rules of the arbitration institution. 40 See further diccussion on the application of PRC Arbitration to different types of arbitration in paragraphs 2.1.1~2.1.5 above.

3.2.1 The PRC Arbitration Law is not based on the UNCITRAL Model Law (1985), although certain provisions reflect the fundamental principles of modern international arbitration, such as procedural fairness and the independence of arbitrators. 41 PRC Arbitration Law, art 1 and 14.  Unlike the UNCITRAL Model Law (1985), the PRC Arbitration Law does not endeavour to recognise the contractual freedom of the parties to resolve their disputes, but instead attempts to protect the “legitimate rights and interests of the parties and to ensure the healthy development of the socialist market economy.” 42 Ibid, art 1.

4.1.1 It is only possible for FIEs or domestic PRC parties to avoid litigation before a PRC People’s Court if the parties to the dispute have entered into a binding agreement to submit their dispute to arbitration. Such an agreement can be entered into before or after the dispute has arisen in the form of a valid arbitration clause in a contract or as a separate, stand-alone arbitration agreement. A PRC People’s Court must decline jurisdiction over a dispute if the parties have concluded a valid arbitration agreement in respect of the dispute in question. 43 Ibid, art 5 and 26.

4.1.2 An arbitration clause contained in a contract or, alternatively, a stand-alone arbitration agreement must be in writing. 44 Ibid, art 16.  Under the law of the PRC, “in writing” includes by letter, telegram, telex, fax, electronic data interchange and email. 45 PRC Civil Code, art 469.  Reference to an arbitration clause contained in standard terms and conditions is sufficient, provided that the general terms and conditions have been validly incorporated into the contract. 46 PRC Civil Code, art 496 and 497.

4.1.3 Where an arbitration clause in a contract differs from a supplemental agreement, the question of which clause will prevail will depend on the individual circumstances. In the case of Hunan Huaxia Construction Co., Ltd. v. Changde School of Arts and Crafts [2015] Zhi Shen Zi No.33, the SPC held that, where a supplemental agreement is inseparable from the original agreement and does not contain an arbitration clause or contains an arbitration clause different from that in the original agreement, the arbitration clause in the original agreement would prevail. However, if a supplemental agreement is independent of and separable from the original agreement, even if it does not contain an arbitration clause, the arbitration clause in the original agreement will not apply. 

4.2.1 A valid arbitration agreement must contain the following particulars:

• an expression of the intention to apply for arbitration;
• the matters being referred to arbitration; and
• a designated arbitration institution. 47 PRC Arbitration Law, art 16.

4.2.2 If the issues to be decided in the arbitration are not clearly stipulated in the arbitration agreement, and the parties fail to clarify the position through a supplemental agreement, the arbitration agreement shall be considered invalid. 48 Ibid, art 18.

4.2.3 As referred to in paragraph 2.1 above, ad hoc arbitrations are in general not permitted under the PRC Arbitration Law. There has been a long-running debate in the PRC as to whether or not an arbitration agreement which only refers to the arbitration rules of a specific arbitration institution, but which does not expressly provide for administration by the specific arbitration institution, constitutes a valid arbitration agreement.

4.2.4 The Interpretation provides guidance for circumstances in which an arbitration agreement only contains arbitration rules without designating the administering arbitration institution, which could potentially invalidate the arbitration agreement pursuant to article 16 of the PRC Arbitration Law. In particular, the Interpretation states that where the name of an arbitration institution as agreed in the arbitration agreement is not accurate, but the specific arbitration institution can nevertheless be determined, it shall be deemed that the arbitration institution has been designated. 49  Interpretation, art 3. The Interpretation also states that an arbitration agreement will not be invalid if the arbitration institution is clearly identifiable by the arbitration rules contained in the arbitration agreement. 50 Ibid, art 4. The Interpretation and its effect on potentially deficient arbitration agreements suggests a relaxation under the PRC Arbitration Law of the requirement that the parties must expressly designate an arbitration institution in their arbitration agreement. The Provisions of the Supreme People’s Court on Several Issues concerning the Hearing of Cases Involving the Judicial Review of Arbitration of 26 December 2017, effective as of 1 January 2018 (SPC Provisions), also provide that where the arbitration institution or the place of arbitration, though not explicitly specified in the arbitration agreement, could be determined under the applicable arbitration rules as specified in the arbitration agreement, the arbitration institution or the place of arbitration shall be taken as the arbitration institution determined by the applicable arbitration rules. 51 SPC Provisions, art 15. Nevertheless, to ensure that the validity of the arbitration agreement is upheld, it is advisable for parties to expressly name a competent arbitration institution to administer the dispute in their arbitration agreement.

4.2.5 Despite the Interpretation, in practice, there is still a risk of the invalidation of an arbitration clause which does not designate the arbitration institution expressly. In the case Automotive Gate FZCO v. Hebei Zhongxing Automobile Manufacturing Co., Ltd. (2011) Shi Min Li Cai Zi No. 00002 (FZCO Case), the Shijiazhuang Intermediate People’s Court found the arbitration clause to be invalid for the reason that the parties had agreed in the arbitration agreement to apply the arbitration rules of the ICC and that the arbitration would be held in China, but did not agree on a specific arbitration institution, which did not satisfy the requirements of article 16 of the PRC Arbitration Law.

4.3.1Under the PRC Arbitration Law, contractual disputes and disputes over property rights between citizens, legal persons and other organisations are arbitrable. 52 PRC Arbitration Law, art 2.  FIEs can, therefore, be parties to arbitral proceedings under the PRC Arbitration Law, provided that they are validly incorporated in the form of legal persons. 53 Ibid, art 1 and 2. In practice, most FIEs, such as Sino-foreign equity joint venture companies and WFOEs, are validly incorporated as legal entities under PRC law.

4.3.2 The following disputes are non-arbitrable under the PRC Arbitration Law:

• marriage, adoption, guardianship, support and succession disputes; and
• administrative disputes that, according to mandatory laws, shall be settled by administrative organs. 54 Ibid, art 3.

4.4.1 The question of whether or not an arbitration clause contained in a contract is valid is considered separately from the question of whether or not the contract itself is valid. An arbitration agreement shall exist independently and shall not be affected by the amendment, rescission, termination or invalidity of the main contract. 55 Ibid, art 19.

4.4.2 In international arbitration practice, the validity of an arbitration agreement is usually determined by the arbitral tribunal. However, under the PRC Arbitration Law, this question is reserved for determination by either the arbitration institution or the PRC People’s Court. 56 Ibid, art 20. See also paragraphs 6.1.1, 6.2 and 9.2.1 below.

5.1.1 An arbitral tribunal may be comprised of one or three arbitrators, as agreed by the parties. 57 Ibid, art 30. The PRC Arbitration Law is silent as to what happens if the parties cannot come to an agreement on the number of arbitrators. This issue is resolved differently depending on which institutional arbitration rules are applicable.

5.1.2 If an arbitral tribunal is comprised of three arbitrators, both of the parties shall select an arbitrator, or authorise the chair of the arbitration institution that is administering the arbitral proceedings to appoint an arbitrator on their behalf. A third arbitrator shall then be selected jointly by the parties or be nominated by the chair of the arbitration institution in accordance with the joint mandate of the parties. The third arbitrator shall be the presiding arbitrator. 58 Ibid, art 31.

5.1.3 If the parties agree to have a sole arbitrator, that arbitrator shall be selected jointly by the parties or shall be nominated by the chair of the arbitration institution in accordance with the joint mandate of the parties. 59 Ibid.

5.1.4 If the parties fail to agree on the method of formation of the arbitral tribunal or fail to select the arbitrators within the time limit specified in the applicable arbitration rules, the arbitrators shall be appointed by the chair of the arbitration institution that is administering the arbitral proceedings. 60 Ibid, art 32

Composition of the arbitral tribunal under the CIETAC Arbitration Rules

5.1.5 Under the CIETAC Arbitration Rules, the arbitral tribunal shall be composed of one or three arbitrators. Unless the parties agree otherwise, the default position under the CIETAC Arbitration Rules is that the arbitral tribunal shall be composed of three arbitrators. 61 CIETAC Arbitration Rules, art 25.

5.1.6 The members of the arbitral tribunal are generally selected by the parties from a panel of CIETAC arbitrators. As of 1 May 2017, CIETAC’s panel of arbitrators consisted of 1,449 arbitrators, including 434 non-PRC nationals from more than 40 different countries. In foreign-related disputes, non-PRC nationals can be appointed as arbitrators. 62 See paragraph 2.3.3 above.  Parties are also entitled to appoint arbitrators who are not listed on CIETAC’s panel of arbitrators, but any such appointment must be confirmed by the chair of CIETAC. 63 CIETAC Arbitration Rules, art 26.

5.1.7 In practice, the majority of the arbitrators, including the chair of the arbitral tribunal, are usually PRC nationals. This is due to the fact that CIETAC tends to appoint PRC nationals as arbitrators when called upon to appoint an arbitrator (eg if CIETAC is acting as the appointing authority or if the parties cannot agree upon the appointment of an arbitrator).

5.2.1 The parties shall have the right to challenge an arbitrator in one of the following circumstances:

• the arbitrator is a party in the case or a close relative of a party or a party’s representative in the case;
• the arbitrator is related to the case;
• the arbitrator has another relationship with a party or a party’s representative in the case which may affect the impartiality of the arbitration; or
• the arbitrator has privately met with a party or a party’s representative or accepted an invitation to entertainment or a gift from a party or a party’s representative. 64 PRC Arbitration Law, art 34.

5.2.2 A party must submit its reasons for challenge of the arbitrator before the first hearing or, if it becomes aware of a reason for challenge of the arbitrator after the first hearing has taken place, it must submit its reasons as soon as possible. A challenge of an arbitrator may be submitted before the conclusion of the final hearing of the arbitral tribunal, if the reasons for the challenge only became known after the commencement of the first hearing. 65 Ibid, art 35. The decision to remove an arbitrator will be made by the chair of the arbitration institution or, if the chair of the arbitration institution is serving as an arbitrator, the decision will be taken by the arbitration institution collectively. 66 Ibid, art 36.

5.2.3 A replacing arbitrator shall be appointed following an arbitrator’s removal. 67 Ibid, art 37.

5.2.4 Once a replacing arbitrator has been appointed, a party may request that the arbitral tribunal hears the dispute afresh. The arbitral tribunal will decide whether to continue the arbitral proceedings or to restart the arbitral proceedings. 68 Ibid.

5.3.1 Article 23 of the PRC Arbitration Law sets out the requirements for the request for arbitration. The request for arbitration must contain details of:

• the parties concerned;
• the parties’ legal representatives;
• the parties’ registered addresses;
• the claimant’s arbitration claim and the facts and reasons on which that claim is based; and
• any evidence, sources of evidence, and the names and addresses of witnesses, if any.

5.3.2 A copy of the arbitration agreement must be attached to the request for arbitration. 69 Ibid, art 22.

• In the course of enacting the 1994 PRC Arbitration Law, the State Council promulgated the Arbitration Fee Collection Measures of Arbitration Commission on 28 July 1995 (Measures). As a general principle, pursuant to the Measures, the arbitration fees shall be borne by the losing party. 70 Measures, art 9; CIETAC Arbitration Rules, art 52.  According to the Measures, the arbitration fees include case acceptance fees and case handling fees. The case handling fees are used for the necessary expenses of paying the arbitrators’ remuneration and maintaining the operation of the arbitration institution. The case handling fees include: (i) accommodation expenses, transportation expenses and other reasonable expenses incurred by the arbitrators in handling the arbitration case due to their business trips and hearing sessions; (ii) accommodation expenses, transportation expenses and overtime subsidies for witnesses, expert witnesses, interpreters and other personnel paid for appearing; (iii) expenses for consultation, appraisal, inspection and translation; (iv) expenses for copying and serving case materials and documents; and (v) other reasonable expenses to be borne by the parties concerned. However, the arbitration rules of relevant foreign-related arbitration institutions contain differing fee schedules and these will apply if such arbitration rules are chosen by the parties. As to which party has to bear the legal fees and other expenses, see section 8.4. 

6.1.1 The arbitration institution 71 Though here the legal provision (art 20 of the Arbitration Law) uses 仲裁委员会 (“arbitral institution”) rather than 仲裁庭 (“arbitral tribunal”), in practice the power lies with the arbitral tribunal. is not exclusively competent to decide upon the validity of an arbitration agreement. 72 Ibid, art 20.  Each party can submit a request for a ruling on the validity of an arbitration agreement either to the arbitration institution or to a PRC People’s Court. If one party requests the arbitration institution to make a decision and the other party applies to the PRC People’s Court for a ruling, the decision of the PRC People’s Court shall prevail. However, where a party has failed to object to the validity of an arbitration agreement prior to the first oral hearing before the arbitral tribunal, or where an arbitration institution has made a decision on the validity of an arbitration agreement, the PRC People’s Court shall not accept an application for a ruling on the validity of the same arbitration agreement. 73 Ibid and; Interpretation, art 13.

6.2.1 The parties may choose the law applicable to the arbitration agreement and should do so in an explicit manner, as such law may not necessarily be the same law as that governing the contract. According to the SPC Provisions, where the agreement only specifies the law applicable to the contract, and not the law applicable to identify the validity of a foreign-related arbitration agreement, the PRC People’s Court shall not consider the law applicable to the contract when identifying the validity of the arbitration provision. 74 SPC Provisions, art 13. In addition, the SPC Provisions take the following arbitration-friendly approach: if the law of the place where the arbitration institution is located and that of the place of arbitration are subject to different laws and regulations on the validity of an arbitration agreement, the laws and regulations that find the arbitration agreement effective shall apply. 75 Ibid, art 14.

6.3.1 Either party can apply for interim protective measures before an arbitral tribunal in the PRC. 76 PRC Arbitration Law, art 28, 46 and 68. However, neither the arbitral tribunal, nor the arbitration institution administering the arbitral proceedings, has the power to order interim measures. Instead, it will forward the application to the competent PRC People’s Court, which has sole jurisdiction to award interim measures. 77 Ibid.  Available interim protective measures include orders preserving property and evidence. 78 Ibid, art 28, 46 and 68. Since 1 January 2013, parties have been able to apply for prohibitory and mandatory injunctions in the course of civil litigation. 79  PRC Civil Procedure Law, art 100-102. However, PRC Arbitration Law is silent on the matter. Therefore, it remains unclear whether parties may seek for an injunction in an arbitral process.property and evidence. Since 1 January 2013, parties have been able to apply for prohibitory and mandatory injunctions in the course of civil litigation. However, PRC Arbitration Law is silent on the matter. Therefore, it remains unclear whether parties may seek for an injunction in an arbitral process. 80 For more details see paragraph 9.3.2 below.

7.1.1Articles 24 and 25 of the PRC Arbitration Law contain certain procedural provisions on the commencement of the arbitral proceedings, specifically those provisions that relate to the acceptance or refusal of the application for arbitration by the arbitration institution. After an arbitration institution accepts an application for arbitration, it shall notify the claimant within five days. 81 PRC Civil Procedure Law, art 24.  The arbitration institution must deliver a copy of the arbitration rules and the panel of arbitrators registered with the institution to the claimant. It must also deliver a copy of the request for arbitration and details of the arbitration rules and the panel of arbitrators registered with the institution to the respondent. 82 Ibid, art 25. After receiving a copy of the application for arbitration, the respondent shall submit a statement of defence and/or a counterclaim to the arbitration institution. The arbitration institution will then serve a copy of the statement of defence and/or a counterclaim on the claimant. Failure on the part of the respondent to submit a defence will not affect the progress of the arbitral proceedings. 83 Ibid.

7.1.2 Under the CIETAC Arbitration Rules, a party can appoint either a PRC or a non-PRC national to act as its representative in the arbitral proceedings. 84 CIETAC Arbitration Rules, art 22.

7.2.1 Under the CIETAC Arbitration Rules, as a matter of principle, the arbitral proceedings shall be conducted in Chinese. However, the parties can agree to conduct the arbitral proceedings in a foreign language. 85 Ibid, art 81.

7.3.1 Under PRC law, parties must agree to an arbitration agreement or arbitration clause for it to be effective and, therefore, only those parties that have expressly consented to refer their dispute to arbitration will be bound by it. There are a limited number of exceptions to this, which are set out in the Interpretation and include:

• where two or more legal entities merge, the merged entity will be bound by the arbitration agreements entered into by its predecessor(s); 86 Interpretation, art 8.
• if claims or debts are transferred or assigned in whole or in part, the related arbitration agreement will be binding on the transferee or assignee, unless otherwise provided by the parties, or if the party is unaware of the existence of a separate arbitration agreement; 87 Ibid, art 9. and
• if an individual who is a party to an arbitration agreement dies, the arbitration agreement will bind the beneficiary who succeeds to the deceased’s rights and obligations in the arbitral matters. 88 Ibid, art 8.

7.3.2 There are no specific requirements in PRC law for a valid multi-party arbitration agreement and so parties should follow the rules of the applicable arbitration institution that has been designated to administer their arbitral proceedings. To deal with multiple parties or multiple contracts, article 19 of the latest CIETAC Arbitration Rules, which are effective as of 1 January 2015, provides CIETAC with the discretion to consolidate two or more arbitrations into a single arbitration if:

1. all of the claims in the arbitrations are made under the same arbitration agreement;
2. the claims in the arbitrations are made under multiple arbitration agreements that are identical or compatible and the arbitrations involve the same parties as well as legal relationships of the same nature; 
3. the claims in the arbitrations are made under multiple arbitration agreements that are identical or compatible and the multiple contracts involved consist of a principal contract and its ancillary contracts; or 
4. all the parties to the arbitrations have agreed to consolidate their respective arbitrations. Further, article 29 of the CIETAC Arbitration Rules contains a clause on multi-party tribunals, stating that where there are two or more claimants and/or respondents in an arbitration case, the claimant side and/or the respondent side, following discussion, shall each jointly nominate or jointly entrust the chair of CIETAC to appoint one arbitrator.

7.4.1 The PRC Arbitration Law also contains several procedural provisions in relation to oral hearings and the procedure to render an award. 89 PRC Arbitration Law, art 39.  Normally, the arbitral tribunal shall hold an oral hearing to hear the arbitration, but, if the parties agree, the arbitral tribunal may conduct the arbitration on the basis of written submissions only. 90 Ibid.  The oral hearings are regulated under the arbitration rules of the designated arbitration institution and led by the arbitral tribunal. There is no guidance on whether the proceedings should follow the civil or common law style. Either is possible, including the arbitration tribunal asking both parties to present evidence, or collecting evidence itself. Expert witnesses may be asked for by the arbitral tribunal or applied for by the parties. Most often there will be no common law style discovery process. Both parties’ representatives may be allowed to put forward arguments and question the other party’s witnesses and experts. In cases where there is no oral hearing, the arbitral award is made based on the written submission, including arbitration application, the defence statement and other documents.

7.5.1 If a claimant fails to appear before the arbitral tribunal without good reason, the arbitral tribunal may deem that the claimant has withdrawn the application for arbitration. Should a respondent fail to appear without good reason, the tribunal may make a default award. The same powers apply if either party leaves a hearing prior to its conclusion. 91 Ibid, art 42.

7.6.1 The arbitral tribunal shall not conduct any oral hearings in public. If the parties agree to a public hearing, the arbitration may proceed in public, except in cases involving state secrets. 92 Ibid, art 40.

8.1.1 As the PRC Arbitration Law is a procedural law, it does not provide any guidance as to which substantive law should be applied to the dispute. This question is subject to the applicable laws and regulations of the substantive law. 93 On the law applicable to the arbitration agreement, see paragraph 6.2 above.

Contractual disputes

8.1.2 Contractual disputes shall be governed by the law chosen by the parties, unless a choice of law is not permitted. According to the Law of the People’s Republic of China on the Application of Law in Foreign-related Civil Relations (Application Law), if the contract involves a foreign interest, the parties are free to agree on the governing law unless mandatory PRC law shall apply. 94 Application Law, art 3 and 4. The PRC Civil Code does not contain a definition of a contract involving foreign interest. The definition of a “dispute involving foreign interests” in article 1 of the SPC Interpretation (I) 95 For further discussion on SPC Interpretation (I), see paragraph 1.2.4 above. is usually applied accordingly. In practice, this means that in most cases a foreigner or foreign entity must be a party to the contract in order to be permitted to choose a foreign law as governing law. Also in this respect, FIEs are not regarded as foreign parties 96 For further discussion on FIEs being regarded as domestic entities, see paragraph 1.2.5 above.  with the consequence that a contract between an FIE and a PRC domestic entity or a contract between two FIEs shall be generally subject to PRC law.

8.1.3 Mandatory PRC law provides that certain contractual transactions (and subsequently, disputes arising out of such transactions) must be subject to the law of the PRC even if the contract involves a foreign interest, eg even if a foreigner or foreign entity is a party to the contract. Such contracts are:

• contracts for Sino-foreign equity joint ventures;
• contracts for Sino-foreign cooperative joint ventures; and 97 PRC Civil Code, art 467 and Circular of the Supreme People’s Court on Several Issues that Shall Pay Attention to in the Trial and Enforcement of Foreign-related Civil and Commercial Cases, art 2.
• contracts for Sino-foreign cooperative exploration and development of natural resources to be performed on the territory of the PRC. 98 Ibid.

8.1.4 In the absence of an agreed choice of law, the arbitral tribunal will apply the rules on conflict of laws provided by PRC law. As a matter of principle, in the absence of an agreed governing law, the law most closely associated with the foreign-related civil relationship shall apply. According to articles 2 and 41 of the Application Law, where the parties did not select the applicable law, the law of the habitual residence of the party who had the obligations to perform the part of the contract that reflects the characteristics of the contract most, or another law most closely associated with the contract, shall apply.

Non-contractual disputes

8.1.5 In addition to contractual disputes, some non-contractual disputes can be subject to arbitration, for example, intellectual property infringement cases, provided that both parties conclude a valid stand-alone arbitration agreement after the dispute has arisen. The law applicable to non-contractual disputes is stipulated in the Application Law. The Application Law also confirms the right of the parties to a dispute to choose the applicable law in a foreign-related civil relationship. 99 Application Law, art 3. However, the Application Law contains certain provisions on the mandatory application of a certain law, eg in cases of real estate property rights, 100 Ibid, art 36. negotiable instruments 101 Ibid, art 39. and pledges. 102 Ibid, art 40.

8.2.1 An award shall specify:

• the arbitration claim;
• the facts of the dispute;
• the reasons for the decision;
• the results of the award;
• the allocation of arbitration fees; and
• the date of the award. 103 PRC Arbitration Law, art 54.

8.2.2 If the parties agree that they do not wish for the facts of the dispute and the reasons for the decision to be specified in the award, such parts may be omitted in the award. 104 Ibid.

8.2.3 A unanimous vote of the arbitral tribunal is not required, but instead awards are made by the majority decision of the arbitral tribunal. 105 Ibid, art 53. Dissenting arbitrators are permitted, but do not have to sign the award. 106 Ibid, art 54.

8.2.4 Arbitral tribunals may grant interim awards during the arbitration on specific facts of the dispute which have become clear. 107 Ibid, art 55.

8.2.5 Under the CIETAC Arbitration Rules, in foreign-related disputes, the award shall be issued within six months from the date on which the arbitral tribunal was constituted. Upon the request of the arbitral tribunal, this time period can be extended by the President of the Arbitration Court if he or she considers it truly necessary and if the reasons for the extension are justified. 108 CIETAC Arbitration Rules, art 48.

8.3.1 The arbitral tribunal can recognise settlement agreements between the parties through an award reflecting the terms of the settlement or through a written conciliation statement. 109 PRC Arbitration Law, art 49 and 51.

8.4.1 In arbitral proceedings, the reasonable legal fees of the winning party shall generally be borne by the losing party. 110 See, for example, CIETAC Arbitration Rules, art 52. This is distinct from litigation in the PRC where, apart from certain disputes concerning the protection of intellectual property rights, a winning party shall generally bear its own legal fees. In exceptional cases, the arbitral tribunal may award additional and other reasonable expenses actually incurred by the winning party.

8.4.2 Interest may be awarded. The interest rate will depend on the law applicable to the dispute. The arbitral tribunal has the discretion to decide whether or not to award interest on claims awarded to the winning party.

8.5.1 In addition to termination by a final award, arbitral proceedings can be terminated by default or settlement.

8.6.1 The award becomes effective and legally binding on the day that it is made. 111 PRC Arbitration Law, art 57.

8.7.1 If there are typographical or mathematical errors in the award, or if the award omits certain matters which shall be decided by the arbitral tribunal, the parties can apply for a correction within 30 days of receipt of the award. 112 Ibid, art 56. If entire claims have been omitted from the award, the parties can apply for a supplementary award.

9.1.1 The role of the PRC People’s Court in arbitration relates to challenging and enforcing awards, as set out in section 10 below and in interim measures, as set out in section 9.3 below.

9.2.1 f a party commences proceedings in the PRC People’s Court in circumstances where it has concluded an arbitration agreement, the PRC People’s Court shall not accept the case, unless the arbitration agreement is invalid. 113 Ibid, art 5. See section 4.1 above on the requirements for a valid arbitration agreement. In the event of a dispute over the validity of an arbitration agreement, either the PRC People’s Court or the arbitration institution shall give a ruling and if one party requests the PRC People’s Court to rule and the other requests the arbitration institution, the PRC People’s Court shall give the ruling. 114 Ibid, art 20. See also paragraph 6.1.1 above.

9.3.1 If a party seeks interim measures of preservation of property in an arbitration, the relevant arbitration institution is required to submit the application to the competent People’s Court where the property is located. 115 PRC Arbitration Law, art 28. And CIETAC Rules, art 23(1), See also paragraph 6.3.1 above. If a party seeks interim measures of preservation of evidence in a domestic arbitration, the relevant arbitration institution shall submit the application to the competent Basic People’s Court where the property is located. 116  PRC Arbitration Law, 46. And CIETAC Rules, art 23(1), See also paragraph 6.3.1 above. If a party seeks interim measures of preservation of evidence in a foreign-related arbitration, the relevant arbitration institution shall submit the application to the competent Intermediate People’s Court where the property is located. 117 PRC Arbitration Law, art 68 and CIETAC Rules, art 23(1), see also paragraph 6.3.1 above.

9.3.2 Article 77 of the CIETAC Arbitration Rules provides that an arbitral tribunal may order its own interim measures upon the request of a party. 118 CIETAC Rules, art 77. The arbitral tribunal is also empowered to request the provision of security in connection with the interim measure. Although article 77 of the CIETAC Arbitration Rules appears to allow the parties to circumvent the PRC courts when requesting interim relief, there is an issue of enforcement. As there is no legislation that provides PRC courts with the legal basis to enforce interim measures ordered by a CIETAC arbitral tribunal, such interim measures have limited practical use. Within Greater China (ie the PRC and the Hong Kong Special Administrative Region), article 77 of the CIETAC Arbitration Rules is likely to be only applicable to cases administered in Hong Kong. Pursuant to article 45 of the Hong Kong Arbitration Ordinance (which has been in effect since 1 June 2011), Hong Kong courts have both legal authority and jurisdiction to grant interim measures in order to facilitate the process of an arbitral proceeding.

10.1.1 As a matter of principle, it is not possible to appeal against an award before an arbitral tribunal or a PRC People’s Court. 119  PRC Arbitration Law, art 9. The corresponding provision in the CIETAC Arbitration Rules is article 49(9).

Awards concerning domestic disputes

10.2.1 While there is no right to appeal, there are certain circumstances in which awards rendered by an arbitral tribunal in the PRC that relate to domestic disputes can be set aside by a competent Intermediate People’s Court. The competent Intermediate People’s Court will be the court at the place in which the arbitration institution that administered the arbitral proceedings is located. 120 PRC Arbitration Law, art 58. If one party applies for the enforcement of an award and the other party applies to have the award set aside, the competent People’s Court shall rule to suspend the enforcement proceedings until a ruling has been made concerning the application for setting aside the award. 121 Ibid, art 64.

10.2.2 A party may apply to the Intermediate People’s Court to have a domestic award set aside within six months from the date of receipt of the award. 122 Ibid, art 59. When making an application to set aside a domestic award, that party must produce evidence to demonstrate that one of the following circumstances has arisen:

• there is no arbitration agreement;
• the matters decided in the award exceed the scope of the arbitration agreement or are beyond the authority of the arbitration institution;
• the formation of the arbitral tribunal or the arbitration procedure did not conform with statutory procedure;
• the evidence on which the award is based was forged;
• the other party has withheld evidence sufficient to affect the impartiality of the arbitration; or
• while arbitrating the case, the arbitrators committed embezzlement, accepted bribes, or made an award that perverted the law. 123 Ibid, art 58.

10.2.3 In contrast to foreign-related awards, a domestic award can be set aside upon substantial review of the merits of the case. For example, this may occur if crucial evidence is found to be insufficient or if the application of the law is found to be erroneous.

Awards concerning foreign-related disputes

10.2.4 For foreign-related awards, either party may apply to the PRC People’s Court within six months from the date of receipt of the award. 124 Ibid, art 59.  The grounds for setting aside are set out in article 274 of the PRC Civil Procedure Law. 125 Ibid, art 70.

10.2.5 According to article 274 of the PRC Civil Procedure Law, a foreign-related award will only be set aside if:

• the parties have neither included an arbitration clause in their contract, nor subsequently entered into a written arbitration agreement;
• the party applying to set aside the award was not requested to appoint an arbitrator or to take part in the arbitral proceedings, or the party was unable to state its opinions due to reasons for which it was not responsible;
• the formation of the arbitral tribunal or the arbitration procedure was not in accordance with the relevant arbitration rules; or
• the matters decided in the award exceed the scope of the arbitration agreement or are beyond the authority of the arbitration institution.

10.2.6 The award may also be set aside if the PRC People’s Court determines that the execution of the award would be contrary to public policy. 126 PRC Civil Procedure Law, art 274, which provides that a court may refuse to enforce an award if it is against public interest.

10.2.7 In an application to set aside a foreign-related award, the Intermediate People’s Court will only review whether the relevant procedural requirements have been fulfilled and will not re-examine the merits of the dispute.

Procedural issues applicable to both domestic and foreign-related awards

11.1.1 The PRC Arbitration Law contains an express obligation upon the parties to perform the award. 127 PRC Arbitration Law, art 62.  Where one party fails to do so, the other party may apply to the PRC People’s Court for enforcement in accordance with the PRC Civil Procedure Law.

11.1.2 An application for the enforcement of either domestic or foreign-related awards must be filed with the Intermediate People’s Courts within two years from the last date which the losing party is ordered to comply with the terms of the award. 128 PRC Civil Procedure Law, art 239. In addition to filing the enforcement application, the party seeking enforcement must also provide the original award and arbitration agreement and evidence to support its application. 129 Provisions of the Supreme People's Court on Several Issues Concerning the Judicial Enforcement of People's Courts, 8 July 1998, revised on 31 December 2008, art 20 and 21.

11.1.3 In order to avoid the risk of contradictory decisions concerning the setting aside and non-enforcement of an award in the same case, where an application to set aside an award has been rejected by the competent court, 130 See section 10.2.2 above.  the enforcing court cannot refuse to enforce such award on the same ground(s) on which the earlier court rejected the application to set aside the award. 131 Interpretation, art 26.

11.1.4 As discussed in paragraphs 2.3.7 and 2.3.8 above, domestic arbitration institutions and foreign-related arbitration institutions are both permitted to render domestic and foreign-related awards, if agreed by the parties. As this distinction between the jurisdiction of domestic and foreign-related arbitration institutions has now been removed, the key consideration for the enforcement of an award in the PRC is the underlying nature of the dispute, rather than the identity of the arbitration institution administering the arbitral proceedings.

Enforcement of a domestic award

11.1.5 The enforcement of domestic awards can only be refused by the enforcing court in accordance with the provisions of article 63 of the PRC Arbitration Law (in connection with article 237 of the PRC Civil Procedure Law). 132 For the definition of “domestic arbitration”, see paragraph 1.2.2 above. The grounds for setting aside domestic awards are:

• the parties have not included an arbitration clause in their contract, or have not subsequently reached a written agreement on arbitration;
• the matters decided upon in the award exceed the scope of the arbitration agreement or the limits of authority of the arbitration institution governing the arbitration; 
• the formation of the arbitral tribunal or the procedure for arbitration does not conform with the statutory procedure on arbitration;
• the evidence used as a basis for rendering an award is fabricated;
• the other party to the case conceals important evidence, which is substantial enough to affect the impartial ruling by the arbitration institution; or
• one or several arbitrators acts corruptly, accepts bribes or engages in malpractice for personal benefits or makes an award that perverts the law. 133 PRC Civil Procedure Law, art 237.

11.1.6 In addition, a PRC People’s Court can refuse to enforce a domestic award where it determines that the execution of the arbitral award would be contrary to the social and public interests of the PRC. 134 Ibid.  If the competent Intermediate People’s Court refuses to enforce the award, this shall be reported to the Higher People’s Court. The Higher People’s Court has the right to make the final decision. However, where the parties concerned reside in different provinces, the Higher People’s Court shall report its refusal to the Supreme People’s Court and make a ruling based on the opinions given by the Supreme People’s Court. 135 See the Provisions on Issues relating to the Reporting and Review of Cases Involving Judicial Review of Arbitration, 26 December 2017, art 2 and 3. This means that from 2018, a reporting procedure similar to that for foreign-related and foreign awards 136 Further discussion on enforcement of foreign awards, see paragraphs 11.1.11 and 11.2.8. has been implemented for domestic awards, which shows the recent pro-arbitration tendency in the PRC legal system.

Enforcement of foreign-related awards

11.1.7 The grounds for refusing enforcement of an award relating to a foreign-related dispute that has been rendered by an arbitral tribunal in the PRC are identical to those for setting aside such an award (as set out in paragraph 10.2.5 above). 137 PRC Arbitration Law, art 71, in connection with PRC Civil Procedure Law, art 274.

11.1.8 If a party seeks to enforce a legally binding foreign-related award, and the party against whom enforcement is sought or that party’s property is not within the territory of the PRC, then the party seeking enforcement shall apply directly to a competent foreign court for the recognition and enforcement of the award. 138 PRC Arbitration Law, art 72.  If such foreign-related arbitral award is related to a case tried by a People’s Court, such court shall have jurisdiction. If such foreign-related arbitration decision is related to a case decided by a domestic arbitration institution, the Intermediate People’s Court at the place where such arbitration institution is located shall have jurisdiction.

11.1.9 If the competent Intermediate People’s Court refuses to enforce the award, this shall be reported to the Higher People’s Court, which must seek the approval of the PRC Supreme People’s Court if it intends to declare the award unenforceable. 139 See the Circular of the Supreme People’s Court on Issues in the People’s Courts’ Handling of Foreign-related Arbitrations and Foreign Arbitrations, 28 August 1995.

11.2.1 Where an award has been rendered outside the PRC either by a foreign arbitration institution or an arbitral tribunal that was established on an ad hoc basis outside the PRC and not voluntarily complied with, the party seeking to enforce that award in the PRC will need to apply to the competent PRC People’s Court for enforcement. The competent court for the enforcement of a foreign award is the Intermediate People’s Court at the place of the respondent’s domicile or where its property is located. 140 PRC Civil Procedure Law, art 283.  The Intermediate People’s Court shall handle the matter pursuant to the terms of any international treaties concluded or acceded to by the PRC, or in accordance with the principle of reciprocity. 141 Ibid.

11.2.2 An application for the enforcement of a foreign award must be accompanied by a certified copy of the award and arbitration agreement, with Chinese translations thereof that have been verified by a PRC embassy or consulate, or a notary in the PRC. 142 Provisions of the Supreme People’s Court on Several Issues Concerning the Judicial Enforcement of People's Courts (for Trial Implementation), 8 July 1998, revised on 31 December 2008, art 21.

11.2.3 When a PRC People’s Court reviews a case on recognising and enforcing a foreign arbitral award by referring to the New York Convention, 143 For the full text of the New York Convention (1985) see https://www.uncitral.org/pdf/english/texts/arbitration/NY-conv/New-York-Convention-E.pdf. if the defending party to the application claims that the arbitration agreement is not valid, the court shall decide the validity in accordance with the relevant provisions of the New York Convention. 144 See the Provisions of the Supreme People's Court on Several Issues concerning the Hearing of Cases Involving the Judicial Review of Arbitration, 26 December 2017, art 16.

11.2.4 With effect from 22 April 1987, the PRC became a contracting state to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards June 10, 1958 (New York Convention). However, in its Declaration of Accession, the PRC made a reciprocity reservation. As a result, the PRC is only obligated to recognise and enforce awards made in the territory of another contracting state of the New York Convention. Foreign awards rendered by foreign arbitration instutitions within the territory of the PRC – for example, an arbitral award rendered by ICC in Shanghai 145 See the Longlide case in 1.2.12. – are not eligible for enforcement in the PRC pursuant to the New York Convention. 146 Circular of Supreme People's Court on Implementing Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China, 10 April 1987.

11.2.5 According to another reservation made by the PRC to the New York Convention, the PRC will only apply the New York Convention to disputes arising out of legal relationships, whether contractual or not, that are considered commercial under national PRC law. To date, this reservation has never been invoked in practice due to the broad interpretation of the term “commercial disputes” contained in the 1987 Circular of the Supreme People’s Court on Implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards Entered by China.

11.2.6 Apart from the above limitations on reciprocity and commerciality, the competent Intermediate People’s Court can only refuse the enforcement of a foreign award for the reasons provided in article V of the New York Convention (eg for serious procedural deficiencies or violations of public policy (ordre public) in the PRC). According to the Circular of the Supreme People’s Court on Issues in the People’s Courts’ Handling of Foreign-related Arbitrations and Foreign Arbitrations promulgated on 28 August 1995 (Circular), if the competent Intermediate People’s Court refuses to enforce a foreign award, this fact shall be reported to the Higher People’s Court. If the Higher People’s Court intends to also declare the award to be unenforceable, it must first seek the approval of the SPC.

11.2.7 The Circular was issued to prevent local courts from refusing the enforcement of foreign awards in order to protect the local party. Before 1995, some PRC People’s Courts had refused to acknowledge and enforce foreign awards. The probability of enforcing a foreign award against a PRC individual or a PRC entity was estimated to be approximately 50% during the 1990s, 147 Randall Peerenboom, “Seeking Truth From Facts: An Empirical Study of Enforcement of Awards in the PRC”, American Journal of Comparative Law (49 Am. J. Comp. L. 249, 2001) p 254.  but has since increased significantly. From 1994 to 2015, 67 out of 98 applications to enforce foreign arbitral awards were granted, resulting in a success rate of 68%. From 2005 to 2015, 78 applications were filed. 46 out of the 78 applications were filed between 2011 and 2015. 148 Enforcing foreign arbitral awards in China – a review of the past twenty years, Meg Utterback, 15 September 2016. In 2018, a total of 25 cases were filed with the People’s Courts in relation to recognition and enforcement of foreign arbitral awards. Among these, 14 arbitral awards were recognised and enforced; one arbitral award was refused to be recognised and enforced; one application for recognition and enforcement of arbitral award was dismissed; eight applicants withdrew the application for recognition and enforcement of a foreign arbitral award; one application for recognition and enforcement of the arbitral award was transferred to another competent Court by the Court concerned.

11.2.8 As discussed in section 2.1 above, apart from the exceptions for FTZs, the PRC Arbitration Law does not recognise agreements to ad hoc arbitration. 149 PRC Arbitration Law, art 16 and 18. However, the PRC Arbitration Law is silent on whether or not an award made in international ad hoc arbitral proceedings (seated outside of the PRC) is enforceable in the PRC

11.2.9 On 3 December 1999, the Beijing Higher Court issued an opinion stating that an ad hoc award is enforceable in the PRC under the New York Convention if the award has been issued in another contracting state to the New York Convention and the law of that state recognises ad hoc arbitration.

11.2.10 Article 16 of the Interpretation provides that the laws agreed upon between the parties shall apply when considering the validity of an arbitration agreement involving foreign interests. In the same vein, article 18 of the Application Law provides that parties may select, by agreement, the law applicable to their arbitration agreements. Accordingly, if the validity of the arbitration agreement is governed by foreign law, the PRC Arbitration Law will not apply when considering the validity of the arbitration agreement. The implication of this is that the restriction concerning ad hoc arbitration will also not apply. 

11.3.1 An arbitral award rendered by a foreign arbitration institution within the PRC was, in the past, very unlikely to be acknowledged and enforced in the PRC. However, on 22 April 2009, the Ningbo Intermediate People’s Court in Zhejiang Province upheld an ICC award by labelling it as non-domestic, despite the fact that the award was made in Beijing (Ningbo Case). In the Ningbo Case, the court rejected the respondent’s challenge to the validity of an award that had been rendered in favour of a Swiss claimant by an ICC arbitral tribunal seated in Beijing. The main reason for the court reaching this decision was that the respondent had failed to object to the jurisdiction of the ICC arbitral tribunal prior to the first oral hearing in the arbitration. In effect, the PRC People’s Court upheld and enforced the award, despite the fact that it was issued by an ICC-administered arbitral tribunal seated within the PRC. Together with the Longlide Case and the BNB Case as discussed above in paragraph 1.2.12, it appears that the judiciary is becoming more liberal towards arbitral proceeding administered by a foreign arbitration institution in the PRC.

11.3.2 The court in the Ningbo Case reached its conclusion from a procedural point of view, ie due to the respondent’s failure to challenge jurisdiction at the appropriate stage of the arbitral proceedings, rather than providing substantive reasoning to confirm that an award rendered by a foreign arbitral tribunal within the PRC should be upheld and enforced by a competent PRC People’s Court. 

11.3.3 It is still too early to conclude whether the decisions of the Ningbo Case, the Longlide Case and the BNB Case signal a change that an award that has been made by a foreign arbitration institution within the PRC will be recognised and enforced in the PRC. It is important to note that although the Longlide Case confirmed the validity of a foreign arbitration institution administering an arbitration that has its seat in the PRC, it was silent on the question of whether a resulting award can be validly enforced. Further laws and regulations on the enforcement of awards rendered in China by foreign arbitration institutions have to be awaited. Until then, it is still advisable to stipulate in an arbitration agreement that arbitral proceedings that are to be administered by a foreign arbitration institution shall be held outside the PRC.

Enforcement of an award made by the International Centre for Settlement of Investment Disputes

11.3.4 The PRC has been a contracting state to the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (Washington Convention) since 1993. 150 For the full text of the Washington Convention, see https://icsid.worldbank.org/en/Documents/icsiddocs/ICSID%20Convention%20English.pdf. The Washington Convention created the International Centre for Settlement of Investment Disputes (ICSID). According to Artcile 54 (1) of the ICSID Convention, Regulations And Rules (ICSID Convention), “each Contracting State shall recognize an award rendered pursuant to this Convention as binding and enforce the pecuniary obligations imposed by that award within its territories as if it were a final judgment of a court in that State.” Article 54 (3) of the ICSID Convention further provides that enforcement of the ICSID award “shall be governed by the laws concerning the execution of judgments in force in the State in whose territories such execution is sought”. However, the PRC law does not provide specified rules of implementation on how to enforce an ICSID award. Therefore, it is currently unclear whether the PRC People’s Courts will enforce such awards in practice.